FDIC back-pedals, but questions on Operation Choke Point remain

In a stunning about-face last week, the Federal Deposit Insurance Corporation (FDIC) issued guidance amounting to an admission of the agency’s involvement in the covert program “Operation Choke Point.”

The guidance states that FDIC-supervised banks should no longer refuse services to entire categories of businesses that the FDIC had deemed “high risk,” but rather should evaluate risk on a case-by-case basis. It comes after months of steadfast denials from FDIC officials and in the face of mounting legal, editorial and legislative pressure regarding Operation Choke Point. Unfortunately, it still doesn’t prevent regulators from inserting their own personal biases into these decisions.

Under Operation Choke Point, federal agencies sought to cut off banking access for entire categories of businesses based on regulators’ personal ideology, including regulated, lawful businesses such as payday lending and firearms dealers.

A subsequent congressional investigation uncovered that this was a coordinated effort orchestrated at the highest levels of the FDIC, including evidence that a FDIC regional director effectively ordered a bank to terminate all relationships with payday lenders. In its first attempt to backpedal, the FDIC withdrew its “hit list” of high-risk merchants in July 2014, and in November announced that its Inspector General would be investigating agency involvement in Operation Choke Point.

While we are pleased to learn about the FDIC’s change of course, there are many unresolved issues around Operation Choke Point. For starters, what prompted such a stunning reversal; is the FDIC trying to get ahead of even more damning evidence of abuses that it knows is coming? How does the FDIC plan to rectify the damage done to the untold number of regulated businesses who lost crucial banking relationships? And will officials at the FDIC – and other agencies that have used Operation Chokepoint to advance their agendas – be held accountable for abusing their positions of trust?

At the same time the FDIC is attempting to backtrack from its most egregious Operation Choke Point abuses, a new front seems to have opened in their ideological crusade against regulated short-term lending. Bloomberg recently uncovered a gradual but sweeping attempt to cut off lenders’ access to the account data used to evaluate borrowers’ ability to repay a loan. This newest attempt to disrupt access to credit comes just as the Consumer Financial Protection Bureau (CFPB) reportedly considers rules requiring short-term lenders to conduct more rigorous underwriting.

Operation Choke Point was never, as regulators claimed, about combatting consumer fraud by impeding unregulated lenders and fraudsters’ ability to access Americans’ bank accounts. Rather, the program – along with new efforts to restrict lenders’ ability to assess underwriting data – makes evident federal agencies bent on eliminating millions of consumers’ access to short-term credit based on biased judgments and misperceptions, not law or fact.

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